On the Lowy money trail

Michael West

Frank Lowy, it seems, was one of the best customers of the secretive LGT bank in Liechtenstein, the bank at the centre of a US Senate probe into tax havens.

LGT even sent one of its bankers to Australia, and later London, to set up a structure for the billionaire businessman as he was not keen on travelling to Liechtenstein, according to a report by the Senate.

The hearings of the investigations subcommittee of the US Senate Committee on Homeland Security and Governmental Affairs now under way in Washington look like turning up a lot more than the travel preferences of the Lowys.

Swiss banking giant UBS has already caved in and apologised for its role in creating overseas bank accounts for US citizens and has pledged to cease the lucrative operation. We've also had the elusive whistleblower (or thief) Heinrich Kieber, giving video testimony in disguise from a secret location. And there's testimony from Westfield scion Peter Lowy - unable to make yesterday's hearings - to look forward to next week.

Already, though, the probe is outlining intriguing details of LGT's relations with the Lowys dating back more than a decade.

The Lowy link of interest to the subcommittee involves measures LGT took to hide the family's ownership of the assets, including by keeping their name off the formation documents for a new foundation, routing incoming assets through an offshore transfer corporation to prevent a direct link to the new entity, and using a Delaware corporation headed by Peter Lowy to name the beneficiaries.

In 2001, the Lowys dissolved the foundation and moved to Switzerland assets totalling about $US68 million, the committee said.

Frank Lowy's office rejects the accusation that it had set up secret bank accounts to avoid paying Australian taxes. The failure of the subcommittee to offer the Lowy family the opportunity to challenge the claim before the report's publication "amounts to a denial of natural justice'', Mr Lowy's statement said on Thursday.

The original spark of the probe came from Heinrich Kieber.

In 2002, Kieber, a technician at LGT in Liechtenstein, a bank that specialises in servicing family trust money, stole documents from the bank and sold them to the German authorities for 5 million euros ($8.1 million), who duly handed them on to US counterparts after launching a probe of their own.

Kieber had been tied up in a dodgy Spanish land deal a few years before, and was later fined for fraud by a Liechtenstein court in 2001. But when he turned whisteblower he became an instant hero in the blogosphere for outing the 1400 wealthy customers of LGT.

LGT visit

The US Senate report goes into extensive detail on the Lowys and LGT.

According to the subcommittee, a relationship manager with LGT, Peter Widmer, visited Frank Lowy, his son David, long-time family lawyer Joshua Gelbard and Westfield director David Gonski in November 1996.

At that meeting they discussed setting up a new foundation. The Lowys ''expressed their intent to establish a large foundation with conservative investments that would serve as 'insurance' for the Lowy family,'' the probe claims.

LGT bank was making an exception for Frank Lowy. Usually, its clients travelled to the tiny mountainous principality in Europe.

In Lowy's case, an LGT memo explained: ''The Lowys have decided that they never want to travel to Liechtenstein or Switzerland in connection with these companies again.''

Subsequent meetings were held in London and the transfer of assets to a foundation called Luperla was discussed.

Further memos following the London meetings noted that Lowy had reached a settlement with the Australian Tax Office and did not want to bring new funds into Australia. He was concerned, said the US Senate report, that if the Australian tax authorities learned he had additional assets, the government could try to subject them to further claims.

''Special caution is to be used, however, since he doesn't believe the Australian tax authorities that the case with the payment of the $25 million is settled for good...The entire documentation and assembly is to be done in such a manner that [Mr Lowy] and his attorneys can testify before (a) court in Australia without hesitation.''

Interpreting these statements, the US Senate investigation found it was "clear that LGT was aware that Mr Lowy and his sons were hiding assets in the new foundation from Australian tax authorities.''

LGT and the Lowys took a number of measures to keep the foundation, Luperla, a secret, including writing proposals on ''neutral'' paper without any reference to any person or corporation in ''the Lowy field''.

To disguise the transfer of assets from other Lowy-related entities, LGT proposed to transfer the assets through a special purpose shell corporation. The Lowys agreed, according to the US Senate report.

A spokesman for Lowy's Westfield Group declined to comment on the details of the claim, referring instead to Thursday's statement from Frank Lowy , in which he said ''all the funds the structure in the Liechtenstein bank were distributed for charitable purposes in Israel some years ago.'' Neither Lowy nor any members of his family had benefited in any way from the structure, the statement said.

Luperla labyrinth

The original assets of Luperla were to come from the proceeds of a labyrinthine share transaction, that the US Senate tries to navigate.

LGT acquired a British Virgin Islands corporation in early 1997, Sewell Services Ltd, to serve as the intermediary for the asset transfers into Luperla from other Lowy related entities.

An account in the name of Sewell was opened at LGT Bank in Liechtenstein and assets destined for the Luperla account were transferred into the Sewell account and then transferred internally, within the bank, from the Sewell to the Luperla account.

''Such intra-bank transfers make it extremely difficult to trace the flow of assets, because no documentation outside of the bank shows that the funds transferred into the bank were destined for or actually deposited into the Luperla account.''

LGT internal memoranda are clear, said the report, that Luperla's ''financial beneficiaries' are the father and the three sons David, Peter, and Stefen (sic). Stephen is group general manager of Westfield, Peter Lowy runs Westfield America and David oversees the family's private wealth.

''In keeping with the Lowys' desire for secrecy, however, the Luperla Foundation did not simply name them as beneficiaries in its documentation. Instead, LGT and the Lowys devised a mechanism that the Subcommittee has not seen before, directing a US corporation to name the beneficiaries of the Liechtenstein foundation,'' the subcommittee report said.

The Senate report says the Lowys went to further lengths to disguise the new foundation. ''At the Lowy's request, for example, LGT agreed that, once the new foundation was established, to remove evidence of old LGT accounts and transactions''.

The US connection to Luperla was via a Delaware corporation owned by another Lowy trust called Beverly Park. Beverly Park would name the beneficiaries of the Luperla Foundation.

Beverly Park is 100% owned by Cordera Holdings Pty Ltd, which is in turn owned by Franley Holdings Pty Ltd., which is owned by LGF Holdings Pty Ltd, which is, in turn, owned by the Frank Lowy Family Trust.

Beverly Park's listed address is 11601 Wiltshire Blvd., Los Angeles, California, which is also the address of the Westfield Group United States. Since Beverly Park's incorporation, Peter Lowy has served as its president and as a director.

Franley is Yelnarf spelt backwards. Yelnarf is one of the Liechtenstein entities.

As is the case with high-level tax-structuring, the wealthy individuals involved will have the names of the bankers, lawyers and other associates as trustees and in other roles in the documentation.

According to the Senate report, LGT Trust's own internal memoranda indicate that LGT viewed the arrangement as a way to ensure that Mr. Lowy and his sons would be the financial beneficiaries of Luperla Foundation, without having to include their names in the Foundation documents.

''It is explicitly apparent from the memorandums for the file that, in accordance with the intention of the founder, the father [Frank Lowy] and his three sons DL [David Lowy], PL [Peter Lowy] and SL [Stephen Lowy] are to be financial beneficiaries,'' said the report.

Luperla was dissolved in June 2001 and its assets disbursed to two different bank accounts in Geneva, Switzerland.

David Lowy's authorisation was sought by LGT for the final Luperla disbursement in a phone call in December 20, 2001, said the report, "demonstrating anew that LGT considered the Lowys to be the key decisionmakers behind Lonas (a company in which Beverly Park held a share), Beverly Park, and Luperla''.

LGT memos and bank records show that, on December 20, 2001, over $US68 million in assets were moved from the Luperla account at LGT to an account at Bank Jacob Safra in Geneva.

Answering IRS inquiries

In 2007, the Lowys were contacted by the IRS with inquiries about Beverly Park.

In submissions to the IRS, the Lowys and Beverly Park officers stated that there was no connection between Beverly Park and any foreign accounts and entities, including Luperla.

Beverly Park claimed it ''has no records demonstrating ownership of stock in any other entity, including Lonas Limited BVI.''

Mr Janks, secretary and director to Beverly Park, represented to the IRS that Beverly Park, its subsidiaries, officers, employees, and agents have no "legal or beneficial interest in...or any direct or indirect signature, management, investment, or other authority over any foreign entities, trusts, corporations, partnerships, or foundations.''

Peter Lowy, president and director of Beverly Park, told the IRS he ''do[es] not have sufficient personal knowledge'' regarding Beverly Park's relationship with any foreign accounts or entities, but has "no reason to doubt the accuracy'' of Mr Janks' statements.

It is the subcommittee's understanding that the IRS inquiry is ongoing. And so are the subcommittee's hearings.

Frank Lowy's statement noted the Senate report had drawn inferences from documents and stated them as facts ''without verifying their contents or inquiring into the real facts.'' Son Peter will get his chance to challenge those claims when he fronts the subcommittee next Friday. mwest@fairfax.com.au